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1. Ethics can be defined broadly as the study of what is good or right for human beings.

ANS: T DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Introduction

KEY: Bloom's: Knowledge

2. Like legal analyses, analyses of ethics have a central authority and follow clear-cut, universal standards.

ANS: F DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Introduction

KEY: Bloom's: Comprehension

3. Business ethics, the study and determination of what is right and good in business settings, has a special set of ethical principles that applies only to the world of business.

ANS: F DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Introduction

KEY: Bloom's: Comprehension

4. As a result of regulations by the Securities and Exchange Commission and the stock exchanges, the boards of directors of the great majority of publicly held corporations consist primarily of outside directors, and these corporations have audit committees of outside directors.

20. The essential characteristic of ethical fundamentalism is a reliance upon a central repository of wisdom.

ANS: T DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Knowledge

21. To a libertarian, it is unjust for a society to take wealth earned by one citizen and to distribute it to others who did not earn it.

ANS: T DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Knowledge

22. What is unjust to a social egalitarian will also be unjust to a libertarian.

ANS: F DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Analysis

23. From a Kantian perspective, for an action to be moral, it must be possible for it to be made into a universal law and it must be respectful of the autonomy and rationality of all human beings.

ANS: T DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Analysis

24. Under a Kantian approach to ethics, a person should not lie to colleagues unless that person supports the right of all colleagues to lie to one another.

ANS: T DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Application

25. Harvard philosopher, Robert Nozick, stressed liberty, not justice, as the most important obligation that society owes its members.

ANS: T DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Knowledge

26. Kant's approach, like that of ethical fundamentalists, asserts that universal laws stem from the direct pronouncements of God.

ANS: F DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Knowledge

27. Bill would like to propose to the board of directors of Bizmarc, Inc., that the corporation distribute one percent of its pre-tax yearly income to feed the poor. To Milton Friedman and others, Bill's proposal might be considered unethical, because it violates the purpose for which the corporation was established.

the power of an individual to assess the rightness or wrongness of decisions is as basic to human beings as the instinct for survival.

b.

market outcomes should be the basis for distributing goods.

c.

the "veil of ignorance" should be developed to consider the needs and rights of all society's members.

d.

society should stress equality of opportunity, not results.

ANS: A DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Comprehension

9. In what way or ways are situational ethics and ethical relativism similar?

a.

They both look to a central authority or set of rules to guide ethical decision-making.

b.

They both assess each separate act according to whether it maximizes pleasure over pain.

c.

They both judge actions from the perspective of the actor.

d.

All of the above.

ANS: C DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Analysis

10. To a __________, whether telling a lie in a given instance would produce greater pleasure than telling the truth is less important than deciding if a general practice of lying would maximize society's pleasure.

a.

deontologist

b.

rule utilitarian

c.

ethical fundamentalist

d.

ethical relativist

ANS: B DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Analysis

11. How does Immanuel Kant's approach to ethical decision-making differ from that of an ethical fundamentalist?

a.

Kant's approach is premised on man's rationality and not on principles handed down from above.

b.

Kant's approach stresses liberty and not justice.

c.

Kant's approach judges society in moral terms by how it distributes goods and services.

d.

Kant's approach assesses each separate act according to whether it maximizes pleasure over pain.

ANS: A DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Analysis

12. In a classic study published in 1932, Adolf Berle and Gardner Means concluded that great amounts of economic power had been:

a.

widely dispersed among a large number of corporations. This trend has continued steadily.

b.

widely dispersed among a large number of corporations. This trend has declined steadily.

c.

concentrated in a relatively few corporations and shareholders had become far removed from active participation in management. These trends have declined steadily.

d.

concentrated in a relatively few corporations and shareholders had become far removed from active participation in management. These trends have continued steadily.

17. Nineteen-year-old Martin was raised in a good, Christian home and attended parochial school through eighth grade. Martin is a good student and citizen who conforms to the expectations of his church, family, and peers. He does so because he loves his family and church, is loyal to them, and trusts them. Under Kohlberg's schematic analysis, Martin is most likely at what stage of moral development?

a.

Pre-conventional.

b.

Conventional.

c.

Post-conventional.

d.

Adult.

ANS: B DIF: Difficulty: Moderate

NAT: BUSPROG: Ethics | BUSPROG: Reflective Thinking

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Application

18. Which of the following is a common criticism of deontological ethical theories?

a.

They are excessively pragmatic.

b.

They are rigid and excessively formal.

c.

They only consider actions by their motives.

d.

They fail to consider universal principles.

ANS: B DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Comprehension

19. Which of the following is a common criticism of ethical relativism?

a.

It promotes open-mindedness and tolerance.

b.

It assumes that a person's actions are always correct for that person, but if that is true, then all behavior is, by definition, moral.

c.

It is rigid and excessively formal.

d.

It is too judgmental.

ANS: B DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Comprehension

20. The type of moral equality espoused by John Rawls is:

a.

freedom to do what one wishes.

b.

social and material equality.

c.

freedom from government regulation.

d.

equality of opportunity.

ANS: D DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Comprehension

21. Social egalitarians believe:

a.

the ends justifies the means.

b.

society should provide each person with equal amounts of goods and services regardless of the contribution each makes to increase society's wealth.

c.

society should divide wealth based on each person's contribution.

d.

that if persons wish to act morally, they should emulate those in the society who always seem to do the right thing.

ANS: B DIF: Difficulty: Easy

NAT: BUSPROG: Ethics | BUSPROG: Analytic

STA: AICPA: BB-Critical Thinking TOP: A-Head: Ethical Theories

KEY: Bloom's: Comprehension

22. Adam Smith, in The Wealth of Nations, said the capitalistic system was composed of six institutions, which include all but which of the following?

1. Is telling a lie unethical? Analyze whether telling a lie is unethical in terms of each of the following ethical theories:

a.

The deontological approach.

b.

Utilitarianism.

c.

Intuitionism and the "Television Test."

d.

Ethical relativism.

e.

Ethical fundamentalism.

ANS:

Answers will vary but should generally consider the following items in analyzing whether telling a lie is unethical.

a.

Immanuel Kant was a deontological theorist. Deontological theories in general hold that certain underlying principles are right or wrong irrespective of any pleasure or pain calculations. Deontologists believe that actions cannot be measured simply by their results but must be judged by the means and motives as well. To Kant, for an action to be moral, it must: (1) be possible for it to be made into a universal law that could be applied consistently; and (2) respect the autonomy and rationality of all human beings. It must not treat them as an expedient. Under his theory, it would be immoral to lie to a colleague if one could not support the right of all colleagues to lie to one another. Kant's approach differs from that of ethical fundamentalism in that it is premised on man's rationality and not on principles handed down from above.

b.

Utilitarianism assesses good and evil in terms of the consequences of the action. Act utilitarianism assesses each separate act according to whether it maximizes pleasure over pain. Under act utilitarianism, if telling a lie in a particular situation will produce more overall pleasure than pain, then it is ethical to lie. Rule utilitarianism holds that general rules must be established and followed even though in some instances, following rules may produce less overall pleasure than not following them. Whether telling a lie in a given instance would produce greater pleasure than telling the truth is less important to the rule utilitarian than deciding if a general practice of lying would maximize society's pleasure. If lying would maximize society's pleasure in general, then it is ethical, but if it would not maximize society's general pleasure, it is not.

c.

Intuitionism holds that a rational person possesses inherent powers to assess the correctness of actions. It is possible to refine one's sense of ethics by emulating the behavior of those individuals who always seem to know what the right choice is in any given situation and who always seem to do the right thing. The "Television Test" holds that a decision is appropriate if the person making it would be comfortable with the decision if it were broadcast on national television for all to witness. Thus, a lie would be unethical if the public believed it to be unethical under the circumstances.

d.

Ethical relativism asserts that actions must be judged by what individuals feel is right or wrong for themselves. It holds that morality is relative. In most situations, ethical relativism would hold that lying is ethical if an individual feels it is right.

e.

Ethical fundamentalism looks to a central authority or set of rules to guide its adherents in ethical decision-making. The central authority may be the Bible, the Koran, or prophets or documents. Whether lying is unethical would depend upon the particular source of authority used. Whatever that source is would absolutely determine whether or under what circumstances lying is ethical. Many ethical fundamentalists believe that lying is always unethical. Others believe it is unethical in most, but not all, circumstances. Whatever rule the central authority states would be absolutely followed by an ethical fundamentalist.

2. Neal is young, likable, optimistic and generous son of a prominent public official. He has a master's degree in business and is the business partner of Ken and Bill in an oil drilling and exploration business. Neal also serves as a director on the board of the Bonanza Savings and Loan Association. While serving on the Bonanza Board, Neal votes to approve major loans to Ken and Bill without disclosing to the other directors that he is a business partner of Ken and Bill. Neal also personally arranges for a $900,000 line of credit from Bonanza for an oil drilling venture in which he is a partner with Ken. The drilling venture is unsuccessful and Ken and Bill both default on their loans to Bonanza, which then causes the S & L to become insolvent. Federal banking officials seize Bonanza and liquidate its assets to pay creditors and depositors. Because Bonanza is federally insured, tax money is also used to pay off depositors whose deposits are insured under federal programs. Bonanza shareholders lose their investment money. Was Neal's conduct as a director of Bonanza ethical? Analyze his conduct in light of the following ethical theories:

a.

Intuitionism and the "Television Test."

b.

Milton Friedman's ideas on corporate governance.

c.

Deontological theories.

d.

Rule utilitarianism.

e.

Ethical relativism.

ANS:

Student answers will vary but should consider factors such as the following in their analysis.

a.

Intuitionism holds that a rational person possesses inherent powers to assess the correctness of actions, and that an individual may refine and strengthen these powers by emulating the behavior of "good persons" who always seem to know the right choice in any given situation. Although Neal is not a "bad" person, he should have sought the advice of more experienced directors and of those who over the years have established codes of conduct for corporate directors. The "Television Test" holds that a decision is appropriate if the person making it would be comfortable with the decision if it were broadcast on national television for all to witness. Neal's actions would likely fail this test. He should have disclosed his business ties with Bill and Ken to the other directors prior to the board's discussion of the loans and to his acts on behalf of his business partners. After disclosing his business ties, Neal should then have refrained from voting on issues involving his business partners, especially when there was a chance he might personally benefit from any loans given to the two men.

b.

Milton Friedman argues that businesses are artificial entities established to permit people to engage in profit-making activities. The social obligation of a corporation is to make money for its shareholders. Under this analysis, Neal's obligation as a director is to make Bonanza as profitable as possible in order to make money for its shareholders. Neal fails this test, because his actions were intended to make money for himself and his own business partners rather than for the Bonanza shareholders.

c.

Deontological theories hold that actions cannot be measured simply by their results but must also be judged by their means and motives as well. This type of analysis would have to analyze the motives behind Neal's failure to disclose his business ties to Ken and Bill and the reasons for his voting to give them loans. These motives are likely to involve some intent to benefit himself as well as his business partners more than they are to benefit the shareholders and depositors of Bonanza. Kant believed that for an action to be moral, it must (1) be possible for it to be made a universal law to be applied consistently; and (2) be respectful of the autonomy and rationality of all human beings and not treat them as an expedient. This type of analysis should consider Neal's actions in terms of his duties to the shareholders and depositors of Bonanza as well as to the taxpayers of the nation and to his business partners. Neal's actions would likely be unethical under this type of analysis.

d.

Utilitarianism assesses actions in terms of the consequences of those actions. Rule utilitarianism holds that general rules must be established and followed even though, in some instances, following the rules may produce less overall pleasure than not following them. It supports rules that on balance produce the greatest satisfaction. That type of analysis makes Neal's actions unacceptable, because it caused more overall pain and was calculated to lessen rather than to increase society's wealth.

e.

Ethical relativism asserts that actions must be judged by what individuals feel is right or wrong for themselves. It is difficult to judge Neal's actions using this system, because if a person's actions are always correct for that person, then his behavior is, by definition, moral and no one can criticize it. Ethical relativism passes no judgment on what the person did other than to determine that the person truly believed the decision was right for him. This type of analysis would make Neal's actions ethical if he thought they were right for him.

3. Compare the social ethics theories of distributive justice, libertarianism, and Marxism. How are they alike? How are they different? Explain your answer.

ANS:

Social ethics theories assert that special obligations arise from the social nature of human beings. John Rawls is a leading proponent of distributive justice. His theory seeks to analyze the type of society that people in a "natural state" would establish if they could not determine in advance whether they would be talented, rich, healthy or ambitious relative to other members of society. Rawls stresses "equality of opportunity." His theory is premised on justice and the belief that everyone is entitled to a fair share in society, a fairness which all must work to guarantee. Libertarians stress market outcomes as the basis for distributing society's rewards. Adherents such as Robert Nozick stress liberty rather than justice as the most important obligation that society owes its members. It is not unjust to a libertarian that some people become wealthy while others have little or nothing. They oppose interference by society in their lives. To a libertarian, it is unjust for society to take the wealth of one citizen in order to distribute it to others who did not earn it. In contrast, Marxism judges society by how it is organized and how it distributes goods and services. Social egalitarians are similar to Marxists in that they believe society should provide all persons with equal amounts of goods and services regardless of the contribution each makes to increase society's wealth.

4. Discuss each of the following ethical theories with regard to whether you accept or reject them for your own actions and decisions.

a.

Intuitionism and the "Television Test."

b.

Rule Utilitarianism.

c.

Ethical Relativism.

d.

Ethical Fundamentalism.

e.

The deontological approach.

f.

Milton Friedman's ideas on corporate governance.

ANS:

Of course, students' answers will vary. Each student should include a general discussion of each of the ethical theories' salient points. More importantly, the students should explore their own ethical approach. They could be encouraged to use examples to illustrate their points. The students should be explicit in the reasoning as to why they accept one theory and reject another. Students should be encouraged to not study these issues in a vacuum but to apply what they are learning to their own lives.

5. Discuss which of the social theories listed below you most agree with and why. Discuss your reasons for disagreeing with the others.

a.

Distributive justice

b.

Social egalitarianism

c.

Libertarianism

ANS:

Students' answers will vary. The goal of this question is to have the students apply what they are learning to develop their own views. The students can be encouraged to use examples from recent events as reported by the media to illustrate their viewpoint. The students' discussion should be accurate as to their description of the theory.

a.

Distributive justice considers the needs and rights of all its members. Harvard philosopher, John Rawls, proposed this theory. Such a society would not be strictly egalitarian. Equality of opportunity would be stressed. (1) This theory appeals to me because... or (2) This theory does not make sense to me because...

b.

Social egalitarians believe that society should provide all persons with equal amounts of goods and services without regard to the contribution each person makes to society. (1) This theory appeals to me because... (2) This theory does not appeal to me because...

c.

Libertarians focus on the marketplace as a determiner of what is best for society. Libertarians believe in dealing honestly but believe in "the survival of the fittest" as determined by the marketplace. To libertarians, it is unjust to take wealth earned by some citizens to distribute to others who did not earn it. (1) This theory appeals to me because... (2) This theory does not appeal to me because...

6. Through his observation of human behavior, psychologist Lawrence Kohlberg developed a model of moral development. Describe the stages of moral development that were studied and developed by Kohlberg and the relevance of this model for ethical business behavior.

ANS:

Kohlberg's first stage of moral development is the preconventional level. At this level, a person would be acting out of fear of punishment. In the business setting, people would act ethically only out of fear that they would get caught and punished if they did not do so. The ramification of this stage of moral development in the adult businessperson is that if there is no realistic fear of being caught, unethical behavior might become common. Persons at this stage do not understand why their behavior is immoral or moral.

Kohlberg's second stage of moral development is the conventional level. People at this level conform their behavior to meet the expectations of the groups to which they belong. The implication of this stage in the business arena is that if the group deems the action to be ethical, then the individual in this stage will follow the group without an independent evaluation of the situation. The example of Nazi Germany directly prior to and during WWII is a chilling one. This is especially true since Kohlberg believes that most adults operate at this level.

Kohlberg's third stage of moral development is the postconventional level. At this level, the individual understands the reasoning behind a particular moral principle. There is a voluntary acceptance of the principles; moral principles are not external to the individual. The implications of this in business are that the individual would make independent judgments of particular ethical dilemmas. Corporate decisions would not necessarily be followed simply out of a sense of loyalty or group expectation.

7. Discuss the arguments for and against businesses' involvement in socially responsible activities.

ANS:

The prime responsibility of business is to make a reasonable return on its investment by producing a quality product at a reasonable price. Businesses are not to be charitable institutions. However, those who favor social responsibility of business use the arguments of a social contract, less government regulation, and long-run profits. The social contract argument is that, because society allows for the creation of corporations and gives them special rights, including a grant of limited liability, corporations owe a responsibility to society. The government regulation argument is that, by taking a more proactive role in addressing society's problems, corporations create a climate of trust and respect that has the effect of reducing government regulation. The long-run profit argument is that corporate involvement in social causes creates goodwill, which just makes good business sense.

Those who do not favor corporate involvement in socially responsible activities use the arguments of profitability, unfairness, accountability, and expertise. The argument regarding profitability is that, because corporations are artificial entities established for profit-making activities, their only social obligation should be to return as much money as possible to shareholders. The unfairness argument is that whenever corporations engage in social activities, they divert funds rightfully belonging to shareholders and/or employees to unrelated third parties. Corporations are private institutions that are subject to a lower standard of accountability than are public bodies. Substantial potential for abuse exists where a company may decide to support a wide range of social causes and yet submit to little public scrutiny. The expertise argument is that, although a corporation may have a high level of expertise in selling its goods and services, there is no guarantee that any promotion of social activities will be carried on with the same degree of competence.

C. Ethical Standards in Business 4. Arguments in Favor of Social Responsibility

1. Choosing an Ethical System a. The Social Contract

2. Corporations as Moral Agents b. Less Government Regulation

c. Long-Run Profits

Cases in This Chapter

(NOTE: These are not actual court cases, but original vignettes which pose ethical problems in business situations. A discussion guide for each is found prior to the answers to problems at the end of this instructor’s manual chapter.)

Pharmacon Drug Company

Mykon’s Dilemma

Oliver Winery, Inc.

JLM, Inc.

Sword Technology, Inc.

Vulcan, Inc.

TEACHING NOTES

Ethics can be broadly defined as the study of what is right or good for human beings. It pursues the question of what people ought to do and what goals they should pursue.

Business ethics, as a branch of applied ethics, is the study and determination of right and good in business settings.

Ethical questions apply to relationships among and between:

• a business and its employees

• a business and its customers

• a business and its owners

• competing businesses

• a business and society at large

• businesses and countries at an international level

In business ethics, it is helpful to employ a seeing-knowing-doing model in which the decision maker follows these steps:

• See (identify) the ethical issues in the proposed conduct and any alternative options

• Know (resolve) which is the best option

• Do (implement) the chosen option

A. Law versus Ethics

*** Chapter Objective ***

Describe the difference between law and ethics.

Law is strongly affected by moral concepts (ethics), but law and morality are not the same. Legality is often a reliable guide to ethical behavior, but it cannot be relied upon as a perfect standard. Legal acts may be immoral, illegal acts may be moral.

B. Ethical Theories

*** Chapter Objective ***

Compare the various ethical theories.

Certain ethical rules are based on theory rather than experimentation (a priori reasoning).

Ethical Fundamentalism

Also called absolutism. Individuals look to a central authority or set of rules for guidance, e.g., the Bible, the Koran, the writings of Karl Marx.

Ethical Relativism

A theory under which actions must be judged by what individuals subjectively feel is right or wrong for themselves. Although apparently similar, the doctrine of situational ethics differs substantially in that it requires one to judge another person’s actions by first putting oneself into that person’s situation.

Utilitarianism

Those actions that produce the greatest net pleasure, compared to net pain, are better in a moral sense. Act utilitarianism assesses each separate act in order to determine whether it produces net pleasure over pain. Rule utilitarianism supports rules that at their inception would appear to be the best hope of producing maximum pleasure for the greatest number of people.

*** Chapter Objective ***

Describe a cost-benefit analysis and explain when it should be used and when it should be avoided.

Utilitarian notions of moral correctness are the basis for the concept of making a cost-benefit analysis in a managerial decision. The purpose of a cost-benefit analysis is to choose the most cost effective method for pursuing a goal after comparing the costs and benefits of proposed alternatives. If increasing net wealth, especially on a short-term basis, is the goal, a sound cost-benefit analysis is a helpful tool.

Deontology

From the Greek word deon, meaning duty or obligation; stresses that certain principles are always right or wrong, no matter the outcome. Actions should be judged by means and motives, rather than only results.

Focus on a person’s obligations to other members of society and also on individual rights and obligations.

Social egalitarians believe that society should provide all persons with equal goods and services irrespective of their contributions to the society’s overall wealth.

Distributive justice also considers the needs and rights of all people, yet stresses the equality of opportunity, not of results.

Libertarians claim that differences in wealth simply demonstrate different levels of skill in the marketplace. Taking wealth earned by some and giving it to others is unfair.

Other Theories

Intuitionism holds that all rational people possess the ability to decide the rightness of an action, though some people have more insight into ethical behavior than others.

The “good person” philosophy is similar, and declares that to act morally, we should emulate those who seem to always choose the “good” or “right” choice.

Television Test" judges the appropriateness of a decision based on whether we would be comfortable with having that decision known by all the world, as if it had been broadcast on television.

C. Ethical Standards in Business

*** Chapter Objective ***

Explain Kohlberg’s stages of moral development.

Choosing an Ethical System

Kohlberg’s Stages of Moral Development provides insight into ethical decision making. Under Kohlberg’s model, people progress through stages of moral development basically as a function of age and education. The pre-conventional or childhood stage, is one where a person’s moral perspective is based only on a punishment/reward concept. The conventional or adolescent stage is one where an individual conforms his behavior to meet group or peer expectations. Some people may reach the third, or post-conventional, adult level where individuals conform to internalized moral principles simply because they understand why the principles are right.

NOTE: See Figure 2-1, Kohlberg's Stages of Moral Development

Some psychologists assert that most people function in all three of Kohlberg's stages simultaneously.

Corporations as Moral Agents

Because a corporation is a statutorily created entity, is not clear whether it should be held to a standard of moral accountability.

D. Ethical Responsibilities of Business

Some regulation has always been necessary to check overreaching greed in our system of modified capitalism.

*** Chapter Objective ***

Explain the ethical responsibilities of business.

Regulation of Business

According to Adam Smith’s model for the perfect capitalistic system, governmental oversight is necessary, but should be limited. Beyond setting the rules and enforcing them, Smith felt that government should stand aside. Increased governmental intervention has occurred, however, because this model cannot be relied on to achieve objectives such as national defense, conservation of natural resources, health and safety, and social security. Successful government regulation involves carefully balancing regulations that attempt to preserve competition and those that attempt to advance other social objectives.

Corporate Governance

The demand for ethical and social responsibility of business also results from the sheer size, and therefore power, of individual corporations. Many people—and even members of the corporate community itself—believe that companies have an obligation to sponsor projects that benefit society in ways beyond the economics of producing goods and services.

Arguments Against Social Involvement

Profitability — Since corporations are artificial entities established for profit-making activities, their only social obligation should be to return as much money as possible to the direct stakeholders, the shareholders.

Unfairness — Whenever corporations engage in social activities such as supporting the arts or education, they divert funds rightfully belonging to the shareholders and/or the employees to unrelated third parties.

Accountability — A corporation may decide to support a variety of social causes but, unlike a governmental body, will be required to submit to little public scrutiny.

Expertise — Although a corporation may have a high level of expertise in selling its goods and services, it may not be able to carry on social activities with the same degree of competence.

Arguments in Favor of Social Involvement

A corporation’s primary objective is to make a return on its investment by producing a quality product at a fair price. Most people agree, however, that corporations have obligations beyond making a profit and avoiding harm to others.

The Social Contract — Since society allows for the creation of corporations and gives them special rights, including a grant of limited liability, this argument holds that corporations reciprocally owe a responsibility to our society.

NOTE: See Figure 2-2, The Stakeholder Model.

Less Government Regulation — When corporations act responsibly, regulation becomes unnecessary. In addition, by taking a more proactive role in aiding with society’s problems, corporations create a climate of trust and respect that may make government more lenient in regulations.

Long-Run Profits — Corporate involvement in social causes has the effect of creating goodwill which simply makes good business sense from a long-run profit perspective.

ANSWERS to QUESTIONS AND CASE PROBLEMS

1. You have an employee who has a chemical imbalance in the brain that causes him to be severely unstable. The medication that is available to deal with this schizophrenic condition is extremely powerful and decreases the taker's life span by one to two years for every year that the user takes it. You know that his doctors and family believe that it is in his best interest to take the medication. What course of action should you follow?

Answer: Arguments Against Social Responsibility. This question illustrates one scenario where arguments against corporate social responsibility could come into play. If you take the “anti-social responsibility” position that a corporation has—as its primary objective—a fundamental responsibility to maximize profits, the employer could make the medication a requirement for the employee to remain in the workforce. It could be argued that this decision may also decrease the possibility of injury or deterioration in working conditions for other employees. The other side of the argument, however, is that this type of decision is too personal for a corporation to make. The ultimate determination should reside with the employee and it should be his free decision to take or not take the medication. This puts the responsibility back where it belongs, on the employee and his family.

2. You have a very shy employee from another country. After a time, you notice that the quality of her performance is deteriorating rapidly. You find an appropriate time to speak with her and determine that she is extremely distraught. She tells you that her family has arranged a marriage for her and that she refuses to obey their contract. She further states to you that she is thinking about committing suicide. Two weeks later, after her poor performance continues, you determine that she is on the verge of a nervous breakdown; and once again she informs you that she is going to commit suicide. What should you do? Consider further that you can petition a court to have her involuntarily committed to a mental hospital. You know, however, that her family would consider such a commitment an extreme insult and that they might seek retribution. Does this prospect alter your decision?

Answer: Arguments For Social Responsibility. A good, responsible manager would be hard-pressed to demand that the employee either improve her on-the-job performance or face dismissal. However, initiating an involuntary committal to a mental hospital could constitute an improper invasion of rights with many legal repercussions. An interim step of providing appropriate psychological social counseling (perhaps at company expense) would seem to best fit into the concept of good corporate management. This would benefit not only the individual, but the corporation may be able to keep a valued employee. The cost of counseling is likely to be less expensive than hiring and training a new employee.

3. You receive a telephone call from a company that you never do business with requesting a reference on one of your employees, Mary Sunshine. You believe that Mary is generally incompetent and would be delighted to see her take another job. You give her a glowing reference. Is this right? Explain.

Answer: Utilitarianism. Pawning off an incompetent employee would certainly help the profitability of an employer. However, relatively accurate referrals are expected, and good corporate citizenship would impose a moral responsibility to act properly. The employer would be better advised to give a more accurate, but not overly negative, description of Mary’s job performance (while staying within the conditional privilege of avoiding a defamation action), rather than generate animosity and gain a reputation as a liar among other businesses in the area.

4. You have just received a report suggesting that a chemical your company uses in its manufacturing process is very dangerous. You have not read the report, but you are generally aware of its contents. You believe that the chemical can be replaced fairly easily, but that if word gets out, panic may set in among employees and community members. A reporter asks if you have seen the report, and you say no. Is your behavior right or wrong? Explain

Answer: Utilitarianism. Weighing the arguments for profitability to shareholders and fairness to shareholders and employees against the arguments for good corporate citizenship and long-run profits, an appropriate response might be that you are aware of the report but haven’t thoroughly read or studied it. Proceeding with a course that acknowledges (at least internally) past dangerous practices, while immediately correcting the current problems, and correcting future problems in a timely manner, may be an appropriate legal as well as moral response to this problem. This is one of the reasons many corporations have a corporate spokesperson to give appropriate and consistent responses.

5. Joe Jones, your neighbor and friend, and you bought lottery tickets at the corner drugstore. While watching the lottery drawing on TV with you that night, Joe leaped from the couch, waved his lottery ticket, and shouted, “I've got the winning number!” Suddenly, he clutched his chest, keeled over, and died on the spot. You are the only living person who knows that Joe, not you, bought the winning ticket. If you substitute his ticket for yours, no one will know of the switch, and you will be $10 million richer. Joe's only living relative is a rich aunt whom he despised. Will you switch his ticket for yours? Explain.

Answer: Fundamentalism. Perhaps an advocate of utilitarianism or social egalitarianism might feel that switching the ticket would be morally appropriate on the premise that it maximized pleasure and was an appropriate distribution of wealth. However, such a moral rationalization would demonstrate the flaws in both theories. There is no escaping the fact that switching the tickets would be improper under the law and most moral theories.

6. Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the range of $13 to $15 million. Omega owns three aluminum plants, which are profitable, and one plastics plant, which is losing $4 million a year. The plastics plant shows no sign of ever becoming profitable, because of its very high operating costs; and there is no evidence that the plant and the underlying real estate will increase in value. Omega decides to sell the plastics plant. The only bidder for the plant is Gold, who intends to use the plant for a new purpose, to introduce automation, and to replace all present employees. Would it be ethical for Omega to turn down Gold's bid and keep the plastics plant operating indefinitely, for the purpose of preserving the employees' jobs? Explain.

Answer: Egalitarianism. Indefinite maintenance of the plastics plant may strike one as being the morally correct thing to do. The moral basis for such a decision would be essentially egalitarianism where the wealth generated by many is redistributed to benefit others. However, as the basis for an economic system, such an approach may be doomed to ultimate failure in that it does not rectify anything and only prolongs a perhaps snowballing problem that could taint and impair the job security of everyone employed by Omega. If managerial and operational changes truly cannot rectify the net loss situation suffered by the plastics plant, sale of the plant to Gold may, in a broader context, be the morally correct thing to do.

7. You are the sales manager of a two-year-old electronics firm. At times, the firm has seemed to be on the brink of failure, but recently has begun to be profitable. In large part, the profitability is due to the aggressive and talented sales force you have recruited. Two months ago, you hired Alice North, an honors graduate from State University who decided that she was tired of the research department and wanted to try sales.

Almost immediately after you sent Alice out for training with Brad West, your best salesman, he began reporting to you an unexpected turn of events. According to Brad, “Alice is terrific: she's confident, smooth, and persistent. Unfortunately, a lot of our buyers are good old boys who just aren't comfortable around young, bright women. Just last week, Hiram Jones, one of our biggest customers, told me that he simply won't continue to do business with ‘young chicks’ who think they invented the world. It's not that Alice is a know-it-all. She's not. It's just that these guys like to booze it up a bit, tell some off-color jokes, and then get down to business. Alice doesn't drink, and although she never objects to the jokes, it's clear she thinks they're offensive.” Brad felt that several potential deals had fallen through “because the mood just wasn't right with Alice there.” Brad added, “I don't like a lot of these guys' styles myself, but I go along to make the sales. I just don't think Alice is going to make it.”

When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report, but indicates that she's not to blame and insists that she be kept on the job. You feel committed to equal opportunity, but don't want to jeopardize your company's ability to survive. What should you do?

Answer: Utilitarianism. This is a common problem with a myriad of legal and moral implications. From a profitability standpoint, especially in the case of a company on the brink of economic failure, ignoring the requirements and whims of customers can amount to economic death. From a legal standpoint, the Equal Opportunity laws operate harshly against an employer that discriminates on the basis of sex or race in hiring and promotional activities. Employees are frequently aware of their rights, yet wishing to help the business of an employer and otherwise acting as a good “team player.” A possible response might be (with the consent of Alice) attempting to divide sales accounts to give to Alice those accounts where her sex would be a neutral or perhaps positive factor, while retaining for Brad oversight of the “good old boy” accounts. Such an approach would acknowledge both her legal rights and her justifiable expectations while not undermining the profitability of a company whose very existence is at issue. Best utilization of employees is critical to any corporation, and this includes sensitivity to both the employees’ needs and the customers’ needs.

8. Major Company subcontracted the development of part of a large technology system to Start-up Company, a small corporation specializing in custom computer systems. The contract, which was a major breakthrough for Start-up Company and crucial to its future, provided for an initial development fee and subsequent progress payments, as well as a final date for completion.

Start-up Company provided Major Company with periodic reports indicating that everything was on schedule. After several months, however, the status reports stopped coming, and the company missed delivery of the schematics, the second major milestone. As an in-house technical consultant for Major Company, you visited Start-up Company and found not only that they were far behind schedule but that they had lied about their previous progress. Moreover, you determined that this slippage put the schedule for the entire project in severe jeopardy. The cause of Start-up's slippage was the removal of personnel from your project to work on short-term contracts in order to obtain money to meet the weekly payroll.

Your company decided that you should stay at Start-up Company to monitor their work and to assist in the design of the project. After six weeks and some progress, Start-up is still way behind their delivery dates. Nonetheless, you are now familiar enough with the project to complete it in-house with Major's personnel.

Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major. But your CEO, furious with Start-up's lies and deceptions, wishes to “bury” Start-up and finish the project using Major Company's internal resources. She knows that withholding payment to Start-up will put them out of business. What do you do? Explain.

Answer: Situational Ethics. We don't know if the development fee was ever paid to Start-up Company. Major had an obligation to pay the initial development fee. If it was paid, and Start-up did not produce the required progress reports then Major is correct to withhold payment. Situational ethics will come into play when you decide whether or not to give Start-up more time to complete the work. If the start-up fee was not paid, and it was Major’s failure to pay on schedule that caused Start-up to divert their personnel, then Major needs to take some share of the blame. .

9. A customer requested certain sophisticated tests on equipment he purchased from your factory. Such tests are very expensive and must be performed by a third party. The equipment was tested and met all of the industry standards, but showed anomalies which could not be explained. Though the problem appeared to be very minor, you decided to inspect the unit to try to understand the test data—a very expensive and time-consuming process. You informed the customer of this decision. A problem was found, but it was minor and was highly unlikely ever to cause the unit to fail. Rebuilding the equipment would be very expensive and time-consuming; moreover, notifying the customer that you were planning to rebuild the unit would also put your overall manufacturing procedures in question. Should you fix the problem, ship the equipment as is, or inform the customer?

Answer: Fundamentalism. You must inform the customer. The customer apparently has the right to request such testing and as such you have ethical responsibility to inform the customer of all factors. The ultimate decision should be made by the customer. However, you have the obligation to comply with the legal and governmental responsibilities within your industry.

10. You are a project manager for a company making a major proposal to a Middle Eastern country. Your major competition is from Japan.

a. Your local agent, who is closely tied to a very influential sheik, would receive a 5 percent commission if the proposal were accepted. Near the date for decision the agent asks you for $150,000 to grease the skids so that your proposal is accepted. What do you do?

b. What if, after you say no, the agent goes to your vice president, who provides the money? What do you do?

c. Your overseas operation learns that most other foreign companies in this Middle Eastern location bolster their business by exchanging currency on the gray market. You discover that your division is twice as profitable as budgeted due to the amount of domestic currency you have received on the gray market. What do you do?

Answer: Ethical Theories. (a) This may cross the line from ethical to legal requirements. If this is not illegal, then applying the doctrine of ethical relativism, you must decide what is subjectively right for you. You also need to check the company code of conduct and any other applicable policy.

(b) Again applying the doctrine of ethical relativism, if you feel strongly enough you may have to quit your job or request a transfer to another division. If this activity is not legal you have the obligation to report it to your company's superiors.

(c) The Utilitarianism cost—benefit analysis will allow you to first quantify this in monetary terms and then compare the direct and indirect costs and benefits. This process may achieve the most profit but may ignore justice in the process.

CASE

Pharmakon Drug Company

ISSUES:

1) The general issue is the appropriateness of affirmative action in the private sector. Does the use of affirmative action when a company is downsizing differ from when a company is hiring or conferring other benefits?

2) The specific issue is how should Pharmakon implement its layoffs and what criteria should it use?

OPTIONS: Layoffs and/or terminations should be based on which one or combination of the following?

1) Cause

2) Merit based on a newly established, reliable, and valid evaluation system

3) Seniority

4) Proportionate (maintain the current percentage of minority employees)

5) Enhancement of minority (increase the percentage of minorities)

6) Encourage voluntary retirement (either with or without incentives)

7) Lottery

8) Pay cuts across the board

9) Other

ANALYSIS OF THE VARIOUS OPTIONS:

How does each of the options impact the following goals of Pharmakon?

1) Productivity

2) Fiscal soundness

3) Minority presence and preservation of minority gains

4) Employee morale

5) Potential for lawsuits

6) Public and community reaction

7) Shareholder reaction

8) Balancing of rights of current employees against past corporate/societal discrimination

• Diversity: How does one place a value on diversity? How should a diversity policy be implemented?

• Equality: How is equality determined—by outcome or by opportunity?

• Political Correctness: What is political correctness? Is it appropriate? Is it relevant to the issues raised in Pharmakon?

CASE

Mykon’s Dilemma

ISSUES:

1) Supply—How much of the fungus do you use immediately? How much do you conserve for future use?

2) Allocation—How should the drug be allocated?

3) Pricing—At what price should the drug be sold?

ALLOCATION OPTIONS — The drug should be distributed on which one or which combination of the following criteria?

1) Based on how long a patient has been seeking medical assistance

2) Triage system—those that are in the most desperate condition get the medication first

3) Only to asymptomatic HIV patients

4) Based on fault —give priority to less culpable victims

5) Free market—the highest bidders

6) Lottery—(a) charge everyone who enters the lottery with the winners receiving the drug without additional charge or (b) an open lottery with the winners receiving the right to purchase the drug

7) Based on patient’s nationality— (a) by the percentage of the company’s business in that country; (b) by the percentage of patients in that country, (c) by the percentage of the company’s employees in that country, (d) by the percentage of stockholders in that country, or (e) by some other nationality-based criteria

8) Give priority to stockholders of the company

9) Give priority to citizens of the country in which the fungus grows

10) Relinquish the decision to a governmental or international body

PRICING OPTIONS —

1) Free market

2) Like any other new drug

3) Free—to all or to some patients

4) A healthy profit margin—that is, a profit higher than the industry norm

ANALYSIS OF THE VARIOUS OPTIONS:

How does each of the options impact the following goals and concerns?

1) Fairness—to patients, stockholders, US citizens, other nationals, and those who cannot afford to pay

2) What can or should be done to prevent a black market in the drug?

3) Can and should a sufficient quantity of the fungus be preserved for future research?

DECISION:

Have the students justify their decision.

ADDITIONAL DISCUSSION:

• Can this case be decided without determining who lives and who dies?

• Who should make this type of decision: The company? A government? An international body?

CASE

Oliver Winery, Inc.

ISSUES:

1) Should the company manufacture the new line of wine and, if so, under what conditions?

OPTIONS:

1) Do not manufacture

2) Do not manufacture and try to prevent others from manufacturing this type of wine

3) Manufacture without company’s name on the wine

4) Manufacture with company’s name on the wine

5) Manufacture and invest a percentage of the profits in education or rehabilitation

6) Manufacture and put a warning on the bottle

7) Manufacture and refuse to sell in certain neighborhoods

ANALYSIS OF THE VARIOUS OPTIONS:

How do these options affect the following stakeholders?

1) Oliver Winery

2) Habitual drinkers

3) Non-habitual drinkers

4) Retailers

5) Community

DECISION:

Have the students justify their decision.

1) Does this decision differ from the decision of a company that is already producing the wine as to whether it should continue to manufacture or not?

2) Does this decision vary or differ between a privately held company and a publicly traded company?

ADDITIONAL DISCUSSION:

· What is the social responsibility of business?

· What is the intent in this type of target marketing?

· Is target marketing appropriate (a) in this case or (b) ever?

· Should the Reverend resign?

· If the company does not produce the wine, will the decision have any effect?

· What would happen if all producers stopped producing this type of wine?

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I have sm(solutions manual ) and tb(test bank) files ,it is Electronic Version, if you need solutions manual or test bank ,please contact me by email: ggsmtb@gmail.com ，Search in This Blog Search Engine with the textbook name or author as the keywords.
if the title what u need is in my blog, only copy the title and email to ggsmtb@gmail.com
if what u need isn’t in my blog ,don’t worry , send the email with textbook name ,isbn and publisher to ggsmtb@gmail.com ,then maybe I can find it for u.
, thanks!!!!
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